Cost Reimbursable Contract vs T&M Contract - which is riskiest for Buyer ?

Submitted by jackcsprat on Sat, 06/25/2011 - 00:44

Rita's PMP Exam Prep book claims  that a Cost Reimbursable contract is the most risky for the buyer,but, I have seen other resources ( I believe Andy Crowe's book) that states that the T&M contract has the most risk for the buyer.


Does anyone know for sure which is correct ?

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PMP / CAPM exam Question bank
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admin

Mon, 06/27/2011 - 04:59

Refer to following posts for elaborate discussion


http://pmzilla.com/procurement-management-contract-types


http://pmzilla.com/procurement-question-most-risk-buyerseller


I dont think there is a clear consensus on this topic. Authors opionions are probably based on the industry they have worked. Points of debate are


1. in T&M buyer can terminate the contract anytime and pay for work till date


2. CR contracts can have ceiling price defined so its not that risky . However I am not sure if this happens in real world


Reading PMBok it seems like T&M is more risky since there is no cap defined. So how to answer the question in the exam ?. I dont think there would be a direct question asking which is most risky. A situation will be described and you will have to pick the best answer, mostly you will have to be pragmatic and think real world in such situations.

Akshay Singh

Wed, 07/20/2011 - 14:56

Buyer Risk is lowest in Fixed price and increases in Cost reimbursable contract and is highest in T&M Contract.

 

Brgds

Akshay Singh

akshay@emensuslearning.com

www.emensuslearning.com

karthik_1505

Mon, 09/26/2011 - 10:44

Akshay's comments are spot on (as per PMP)


Apart from the Ceiling price, CR can have Incentive which is attractive to Seller and he may perform well to gain this money, thus lowering the risk on buyer.


T&M is the riskiest.


Regards

fasgoll

Mon, 09/26/2011 - 08:29

thank you for posting this. I have printed it off and carry it with me. It is a great tool reference to refer to for impromptu study sessions. Also it is useful since the information is not just from the PMBOK. Ontario mortgage broker

JerryS

Mon, 11/07/2011 - 08:39

This sort of contracting is considered high-risk for the government because of the potential for cost escalation and because the government pays a contractor’s costs of performance regardless of whether the work is completed. Mineco

Kevin Thornely

Fri, 12/23/2011 - 07:56

Cost Reimbursable Contract is indeed risky and can cause a big loss if not dealt properly.
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JerryS

Fri, 12/30/2011 - 08:37

 Nice review... I think people should get some information before they decide to buy anything and which is very new to the market.  Fire Safety Training